How to create a financial forecast for a ceramic household goods maker?
Developing and maintaining an up-to-date financial forecast for your ceramic household goods manufacturing business is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together a ceramic household goods manufacturing business financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for a ceramic household goods manufacturing business?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your ceramic household goods manufacturing business becomes handy.
Creating a ceramic household goods manufacturing business financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your ceramic household goods manufacturing business.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a ceramic household goods manufacturing business is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your ceramic household goods manufacturing business's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is used as input to build a ceramic household goods manufacturing business financial forecast?
A ceramic household goods manufacturing business's financial forecast is only as good as the inputs used to build it.
If you are creating (or updating) the forecast of an existing ceramic household goods manufacturing business, then you mostly need your accounting information, key historical operating non-financial data, and your team’s input on what to expect for the coming years.
If you are building financial projections for a ceramic household goods manufacturing business startup, you will need to have done your research and have a clear picture of your competitive environment and go-to-market strategy so that you can forecast sales accurately.
For a new venture, you will also need a precise list of the resources needed to keep the ceramic household goods manufacturing business running on a day-to-day basis and a list of the equipment and expenditures required to start the business (more on that later).
Let's now take a closer look at the elements that make up your ceramic household goods manufacturing business's financial forecast.
The sales forecast for a ceramic household goods manufacturing business
From experience, it is usually best to start creating your ceramic household goods manufacturing business financial forecast by your sales forecast.
To create an accurate sales forecast for your ceramic household goods manufacturing business, you will have to rely on the data collected in your market research, or if you're running an existing ceramic household goods manufacturing business, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Consumer preferences: The type of ceramic household goods that are in demand can greatly impact your average price and number of monthly transactions. For example, if there is a trend towards more decorative and intricate pieces, you may be able to charge a higher price and see an increase in transactions.
- Economic conditions: Fluctuations in the economy can also affect your business. During times of economic prosperity, consumers may be more willing to spend on luxury items such as ceramic household goods, leading to an increase in average price and transactions. On the other hand, during a recession, consumers may prioritize essential items and your average price and transactions may decrease.
- Raw material costs: The cost of raw materials used in the production of ceramic household goods can impact your average price. If the cost of materials increases, you may need to raise your prices to maintain profit margins, which could potentially lead to a decrease in transactions as consumers may be deterred by the higher prices.
- Competition: The level of competition in the market can also affect your average price and number of transactions. If there are many competitors offering similar products, you may need to lower your prices to remain competitive. This could lead to a decrease in average price but an increase in transactions as consumers may be drawn to the lower prices.
- Seasonal demand: Certain times of the year may see a higher demand for ceramic household goods, such as during the holiday season or during wedding season. This can result in an increase in both average price and transactions as consumers are willing to spend more during these periods.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a ceramic household goods manufacturing business
The next step is to estimate the costs you’ll have to incur to operate your ceramic household goods manufacturing business.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your ceramic household goods manufacturing business's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, wages, benefits, and payroll taxes for all employees, including production workers, administrative staff, and management.
- Raw Materials: This expense covers the cost of purchasing clay, glazes, and other materials needed to create your ceramic household goods.
- Utilities: You will need to budget for electricity, water, and gas expenses to power the kilns, lighting, and other equipment in your manufacturing facility.
- Rent or Mortgage: If you are not operating your business out of your own property, you will need to factor in the cost of renting or leasing a manufacturing space.
- Insurance: Protect your business from potential risks and liabilities by budgeting for insurance costs, including property insurance, liability insurance, and workers' compensation insurance.
- Accounting and Bookkeeping Fees: Proper financial management is crucial for any business, so you will need to budget for the cost of hiring an accountant or bookkeeper to keep track of your finances.
- Marketing and Advertising: In order to promote your ceramic household goods and attract customers, you will need to allocate funds for marketing and advertising expenses, such as creating a website, running social media ads, or attending trade shows.
- Packaging and Shipping: This expense covers the cost of packaging materials, such as boxes, bubble wrap, and tape, as well as shipping fees to deliver your products to customers.
- Software Licenses: You may need to purchase software licenses for programs such as design software, inventory management software, or accounting software to help run your business more efficiently.
- Training and Development: Keep your staff up-to-date with the latest techniques and technologies by budgeting for training and development programs.
- Maintenance and Repairs: Your equipment and machinery will require regular maintenance and occasional repairs, so be sure to include this expense in your budget.
- Taxes and Permits: As a business owner, you will be responsible for paying various taxes, such as income tax, sales tax, and property tax, as well as obtaining necessary permits and licenses.
- Banking Fees: You will need to budget for fees associated with business banking services, such as transaction fees, wire transfer fees, and monthly account maintenance fees.
- Office Supplies: Don't forget to budget for essential office supplies, such as paper, pens, and printer ink, to keep your business running smoothly.
- Professional Services: You may need to hire outside professionals, such as lawyers or consultants, for specific projects or to provide expertise in certain areas of your business.
This list is not exhaustive by any means, and will need to be tailored to your ceramic household goods manufacturing business's specific circumstances.
What investments are needed to start or grow a ceramic household goods manufacturing business?
Once you have an idea of how much sales you could achieve and what it will cost to run your ceramic household goods manufacturing business, it is time to look into the equipment required to launch or expand the activity.
For a ceramic household goods manufacturing business, capital expenditures and initial working capital items could include:
- Equipment: This includes the purchase or lease of machinery, tools, and equipment needed for the production of ceramic household goods. This could include items such as kilns, pottery wheels, molds, and glazing equipment.
- Facility Improvements: This includes any renovations or improvements needed for the manufacturing facility, such as installing ventilation systems for proper air circulation or upgrading electrical systems to support the use of equipment.
- Raw Materials: Raw materials are a necessary expense for manufacturing ceramic household goods. This could include items such as clay, glazes, and other materials needed for production.
- Packaging Materials: Packaging is an important aspect of the manufacturing process and requires the purchase of materials such as boxes, bubble wrap, and packing materials to ensure the safe transportation of the finished goods.
- Inventory: As a manufacturing business, it is important to have a supply of inventory on hand to meet customer demand. This could include finished products, as well as raw materials and packaging materials.
Again, this list will need to be adjusted according to the specificities of your ceramic household goods manufacturing business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your ceramic household goods manufacturing business
The next step in the creation of your financial forecast for your ceramic household goods manufacturing business is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a ceramic household goods manufacturing business?
Now let's have a look at the main output tables of your ceramic household goods manufacturing business's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your ceramic household goods manufacturing business's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a ceramic household goods manufacturing business should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
Your ceramic household goods manufacturing business's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your ceramic household goods manufacturing business will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the ceramic household goods manufacturing business's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your ceramic household goods manufacturing business is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your ceramic household goods manufacturing business's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your ceramic household goods manufacturing business's financial projections?
Building a ceramic household goods manufacturing business financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your ceramic household goods manufacturing business's forecast
The modern and easiest way to build a forecast is to use professional financial projection software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Outsourcing the creation of your ceramic household goods manufacturing business financial forecast is another possible solution.
This will cost more than using software as you can expect as your price will have to cover the accountant’s time, software cost, and profit margin.
Price can vary greatly based on the complexity of your business. For a small business, from experience, a simple three-year financial forecast (including a balance sheet, income statement, and cash flow statement) will start at around £700 or $1,000.
Bear in mind that this is for forecasts produced at a single point in time, updating or tracking your forecast against actuals will cost extra.
If you decide to outsource your forecasting:
- Make sure the professional has direct experience in your industry and is able to challenge your assumptions constructively.
- Steer away from consultants using sectorial ratios to build their client’s financial forecasts (these projections are worthless for a small business).
Why not use a spreadsheet such as Excel or Google Sheets to build your ceramic household goods manufacturing business's financial forecast?
Creating an accurate and error-free ceramic household goods manufacturing business financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own ceramic household goods manufacturing business, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your ceramic household goods manufacturing business
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your ceramic household goods manufacturing business future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a ceramic household goods manufacturing business, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- How to project sales for a business?
- Financial forecast template for a business idea
Know someone who owns or is thinking of starting a ceramic household goods manufacturing business? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
